Archives of “January 13, 2019” day

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7 Warning Signs for Traders

  
  Education
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  1. You stop trading your plan and start “shooting from the hip” you are losing or winning so you believe that you are above your own rules, you start trading your opinions instead of your plan.

  2. You are about to take a trade you are 100% sure of, you have no doubt that it will work out. Trades that feel good to do and feel like can’t lose trades rarely win because everyone is already positioned in those trades.
  3. When you ignore your first stop and start deciding that you should give your trade “more room”, when you allow a loss to grow and rationalize why you should hold it instead of following your plan and stopping out you are in trouble.
  4. Averaging down in a position that is going against you is never a good idea, fighting trends are very dangerous amplifying your losses by increasing your position size can be fatal to your account.
  5. Fighting against the prevailing market trend over an over again can chop your account to pieces.
  6. When losing, you start trading bigger and bigger to get back to even. When you are losing you should start trading smaller and smaller to decrease losses.

  7. When you actually disagree with the market and believe it is wrong and you are right. Price is reality wherever it is, your job is to trade trend and price action not your own opinion.

Expectancy

  
  Education
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Expectancy
Expectancy along with position sizing are probably the two most important factors in trading/investing success. Sadly most people have never even heard of the concept.
Expectancy is the average amount you can expect to win (or lose) per rupee at risk.
Here’s the formula for expectancy:
Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)
As an example let’s say that a trader has a system that produces winning trades 30% of the time. That trader’s average winning trade nets 10% while losing trades lose 3%.

Expectancy, position-sizing and other aspects of money management are far more important than discovering the holy grail entry system or indicator(s). Unfortunately entry techniques are where the vast majority of books and talking heads focus their attention. You could have the greatest stock picking system in the world but unless you take these money management issue into consideration you may not have any money left to trade the system. Having a system that gives you a positive expectancy should be in the forefront of your mind when putting together a trading plan.

Where did the ‘$’ sign come from?

  
Analysis, Education
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Whilst the origins of the term ‘Dollar’ and its transformation to common usage in the US appear to follow a well laid-out path. The evolution of the $ sign itself is somewhat more uncertain. There are a number of competing theories, each of which are seemingly possible, though some with more credence than others. 
The most likely is the theory that it comes from a handwritten ‘ps’, an abbreviation used in correspondence as a plural form of ‘Peso’. Manuscripts from the late 18th and early 19th century show the ‘s’ gradually being written over the ‘p’, and the upward stroke of the ‘p’gaining dominance over the curved upper part. This eventually developed into something resembling the ‘$’ sign. (see below)
The ‘ps’ symbol first occurs in the 1770s, in manuscript documents of English-Americans who had business dealings with Spanish-Americans, and it starts to appear in print more commonly after 1800. – This does not however explain why sometimes the $ sign is drawn with 2 lines running through it.

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Basic principles for Traders

  
  Education
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Many of you spend too much time worrying about things like other peoples trading signals, what price pattern it is you are looking at, which strike price to select, how to read implied volatility, etc when you haven’t constructed the basic tenets of portfolio management or asset allocation.

Shame on you.

To your defense, I can’t make any assumptions when I have no idea what your time frame is, what your financial standing is, your risk tolerance, your investing objectives, or anything else looks like about you. What I do know is this… I don’t care who you are or what you are trying to accomplish, you will not last long in the pursuit of becoming a decent trader without creating a firm foundation of these basic principles, which are…

Risk management- Plan your loss before planning your profit.

Diversification- Be bullish, be bearish, be involved in various groups/markets.

Proper Position Sizing- Trade small, trade safe.

Effective Trading Plan- Make sure your plan works, and/or makes money.

Cutting Losses Short- Enter a trade that offers a small loss.

Letting Winners Run- Don’t kill your winners.

Curbing Your Emotion- This is a bi product of trading small.

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